Close your eyes and picture this for a moment; what would the first half of 2020 look like for you if there were no Coronavirus?
For Jack, a 27 year old male from Sydney who spent his early twenties saving every cent to buy his first home, he’d be returning to work from ‘the holiday of a lifetime’ sun-kissed, jetlagged and probably a tiny bit fluent in about four to six European languages.
Like most people, the first six months of Jack’s 2020 ended up looking very different. After working in the airline industry for over eight years, Jack was placed on extended leave without pay effective immediately in late March, creating concerns for how he was going to maintain his home loan repayments.
To help offset the impact Coronavirus was having on Australia’s economy and employment, the Government introduced the Early Release of Superannuation (ERS) scheme. This allowed people who were faced with financial hardship due to Coronavirus, and met prescribed eligibility criteria, the option to withdraw up to $10,000 in super in FY19/20 and up to another $10,000 in FY20/21.
After the first month of this initiative, the ATO announced there were 975,300 registrations of interest and of those, 757,000 applications had been approved. Close to half of these applications were aged thirty and below. These figures have continued to rise, with APRA reporting on 28 September 2020 that the total number of repeat applications was 1.3 million and 3.2 million for non-repeat applications, with a total of $33.8 billion in funds withdrawn. The total average withdrawal is now approximately $7,671.
For people like Jack the ERS initiative offered some peace of mind, allowing him to live life with some sense of security. “I took the $10,000 out because I wanted to hedge against the future (being an airline worker).”
An article published by the ABC in late April tells other stories; of two Australians faced with the hard decision of dipping into their retirement savings to help cover the cost of daily expenses. A digital strategist and father of two young children had no other option than to withdraw part of his super to help manage his “exceptional circumstances”. His business had seen incoming work requests reduced by about 60 per cent as a result of the pandemic. “It’s just down to the necessities in terms of the things we can’t not pay, which is keeping up our rent, and putting food on the table …we won’t be going on fancy trips or do anything crazy with the money – it’s survival money.”
Another example in the same ABC interview was a young casual English teacher, who had her working hours significantly reduced, and was forced to make the hard decision to move back into her parents’ house. However, this experience provided an opportunity to start fresh for the young teacher who decided to return to university and use her super withdrawal as financial support to do this.
Shining a bigger spotlight on super
Is an unintended consequence of the ERS scheme greater awareness of and engagement with super amongst GenZ’s and Millennials? Are younger people starting to think about super in a different way? From ‘something I have but never really thought about’ to ‘money that is actually mine and will be what sustains my lifestyle at a time in the future?’
For Jack, the ERS brought the concept of superannuation to life, giving him an understanding of where that 9.5 per cent actually goes after each paycheck. “Before Coronavirus, I hadn’t been engaged with my super at all. The only changes I had made in the last fifteen years were to consolidate two separate supers and then to switch providers, as one allowed me to earn frequent flyer points (talk about my short term goals).”
Jack’s experience is supported by recent research from Colonial First State, which revealed that younger Australians who still have time before retirement were feeling more anxious about retiring than their older counterparts. The pandemic has been a big wake up call for those Australians in their prime working age regarding their employment, savings, expenses, investments and super, and many have been forced to get a better grasp of their finances.
Finding ways to better engage with members
Here lies the opportunity for funds. Funds need to help members better understand their super and how they can go about rebuilding their retirement savings. Given members are now more engaged than ever, there’s real opportunity to better educate members about options such as voluntary contributions and government offers (such as co-contribution payments and the spouse tax offset).
For Jack, his ERS application prompted him to become mor mindful of this super and even keen to explore new possibilities and ways to save for his future. “It prompted me to look into salary sacrificing options as a way to use the 15 per cent tax rate to reduce my income into a lower tax bracket.
“Coronavirus has sparked numerous conversations about super amongst my friends and family. Discussions have centred on falling super balances as a result of share market volatility and the early access scheme,” Jack said.
“It’s made my partner and I take a new and deeper interest in how we can manage and grow our super. Previously, we had a ‘set and forget’ mentality.”
It is essential now to provide superannuation members with appropriate help on what their options are in a post-Coronavirus world to not only recoup, but to grow their super balances while super is still fresh in their minds. It is also important to pay homage to the young people hit hard by the current downturn and who have shown incredible resilience and demonstrated an impressive ability to adapt to a ‘not so normal existence’.
The article is not financial product advice and does consider anyone personal circumstances. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of ASFA.
